Will stronger regulation be boon or bane for BNPL share prices?

ASX-listed Buy-Now-Pay-Later (BNPL) companies have voiced disparate responses to recent calls for the launch of stricter regulation that could have an impact on their share prices.

While MoneyMe has backed the strongest recommendation made by a recent Treasury options paper, Zip has voiced objections on the grounds of the 'large impost' it would create for operators.

Rapid growth prompts calls for stricter regulation

The Australian BNPL sector has seen strong growth in recent years, by making credit products more accessible to consumers that are often neglected by established financial institutions.

Key features of players in the sector include the provision of interest-free credit products, as well as the use of fintech innovations to make products more accessible to consumers by embedding them in the purchasing process.

Figures from the Reserve Bank indicate that the value of BNPL transactions grew by around 37% in 2021/22 to $16 billion. The number of active Australian BNPL customer accounts also increased by 2 million accounts over the year to June.

According to research from the Australian Finance Industry Association, as of March 2022 55% of people aged 18 - 24 had used BNPL, while the figure for people aged 25 - 35 was 58%.

This rapid growth has prompted calls for better regulation of the BNPL market, particularly given concerns that people under financial duress are more inclined to make use of BNPL.

Towards the end of November, Treasury released an options paper outlining three regulatory options for the BNPL sector.

The first option is stronger self-regulation and testing for affordability, while the second recommendation is to partially bring BNPL providers under the remit of the National Consumer Credit Protection Act. This would require that providers obtain Australian credit licenses and step up industry codes.

The third option is to bring the sector completely under the Credit Act, applying to BNPL platforms the same responsible lending requirements that are currently in force for credit card providers. According to a report from Fairfax, over a dozen consumer groups, charities and community legal centres have voiced their support for the third option, because the first two options would leave room for legal loopholes.

MoneyMe backs BNPL regulatory push

ASX-listed online lending platform MoneyMe has voiced its support for the third recommendation proposed by Treasury, even if it means eroding the competitive advantage that BNPL products currently enjoy compared to other lending options.

MoneyMe CEO and managing director Clayton Howes said to The Australian that the move would 'level the playing field in the industry' as well as help to protect consumers by removing 'blind spots' for lenders.

'[Regulation] has got to create a fair approach for lenders and customers and for me, being fair we need to have the reporting standard so that we don't have blind spots,' Howes said.

'Accurate and extensive credit reporting allows lenders to be more accurate in our credit decision and, in turn, helps to protect consumers.'

Zip voices objections

Unlike MoneyMe, Zip has expressed objection to the third option because of the 'large impost' it would create for BNPL platforms when performing affordability verifications. This would require checking one or multiple sources of financial information, including payslips and bank statements.

Zip co-founder Peter Gray said that while the company would only need to make minimal adjustments to its operations to satisfy the requirements of the third recommendation, other regulatory options were still preferable.

'We have demonstrated we are able to deliver that in terms of our regulated product,' Gray said to Fairfax. 'It's more we're advocating for fit for purpose regulation for the broader industry.'

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